Investment bank plan under fire

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Investment bank plan under fire

The financial regulator’s initiative to foster large investment banks has come under fire as details on the proposal limit property investments.

Under the measures announced this year, securities firms with more than 4 trillion won ($3.3 billion) in capital will be allowed to issue one-year promissory notes and provide wider corporate financing services while those with 8 trillion won can handle the Investment Management Account, which deals with different financial instruments, including bonds and promissory notes.

But in the latest legislation draft, released on Thursday, companies applying for the wider businesses should comply with requirements in deploying funds earned in the expanded areas.

The companies with more than 4 trillion won in capital cannot invest more than 10 percent of the entrusted money in real estate assets.

The Financial Services Commission, the nation’s top regulator, explained that the move is intended to direct more money to corporate financing. “We don’t think that the 10 percent threshold is excessive,” said an FSC source who spoke anonymously.

“This measure, in the first place, was designed to promote corporate financing,” the source said, “If the investment is centered around real estate market, the goal of the policy would not be achieved.

A 4 trillion won capital company must allocate 50 percent of the entrusted funds to corporate financing, while an 8 trillion won unit has to funnel 70 percent. The source also noted that the limit on the real estate investment would also enhance fiscal soundness of big securities companies.

The stance is in line with the financial authorities wary of potential real estate bubble, which could deal a huge blow to property investors.?

“The officials in the financial regulatory agency turned more conservative when it comes to property investment,” said a source from asset management division at the Financial Supervisory Service. “The property investment should be considered high-risk, especially at a time when the housing market bubble is expected to bust in the near future.”

The industry says, however, that the cap on property investment is unfair given that it emerged as a new alternative investment.

“The proportion of real estate investment had been on the rise since there are only few investment instruments to achieve high yields,” said a representative of a securities company with more than 4 trillion won in capital. “We understood that the government will ease regulation for IB companies but there are some regulations that we couldn’t expect.”

So far, securities companies were limited to currency exchanges for futures. But spot exchange dealings, previously handled by banks, will be opened to securities companies with capital of more than 4 trillion won.

The mega-merger of Mirae Asset Securities and Daewoo Securities created a company with capital of 6.7 trillion won. NH Investment & Securities is also set to benefit. When a merger between KB Investment & Securities and Hyundai Securities is completed, the combined unit would have over 3 trillion won in capital under its belt while Samsung Securities will have over 4 trillion won in capital.

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